NZ Milk Production in the First 5 Months of the Season Is the Lowest in 5 Years

Despite excellent milk production in 2021, totalling 21.88 million mt, up 13.17 thousand mt from the previous year, production from June when the season began to October this year has been lax. Collections so far have totalled 7.38 million mt the lowest in 5 years. In 2021, that collected in the same period was 7.65 million mt compared to 7.93 million mt in 2020. The 7.38 million mt collected from the start of the season till date is 331 thousand mt lower than the 7.7 million mt 5- year average and 176 thousand mt below the 2021 total.

October is typically the month with peak seasonal milk production, but the 3.025 million mt of milk collected in October this year is 3% lower than the 3.113 million mt collected in October 2021. This may be an indication that milk production this year may not see recovery as previously predicted.

Although milk is fetching high prices at the farm-gate level, that hasn’t incentivised farmers enough to increase production. The New Zealand /Fonterra farm-gate raw milk prices as per data supplied by CLAL sold at NZ$ 70.30 per 100kg in September up from NZ$64.70 per 100kg in the same month the previous year.

The decline in milk production points down to the difficulties that confront the dairy industry in New Zealand i.e., farmers who are leaving the business entirely, and for those who choose to stay, a lot are ageing same as their lifestyle and sterner greenhouse emissions regulations which are adding to the pressure.

Additionally, the higher input and feed cost has been cutting into farmer margins. Because dairy farming in New Zealand is mostly pasture-based, a lot is spent on fertilizer and other inputs. Agricultural fertilizer prices have increased significantly in recent months. The price rises have been driven largely by global and geopolitical pressures including increased demand, the war in Russia-Ukraine war and higher energy costs. It is thus pushing the milk-to-feed price ratio to a level where dairy farmers in New Zealand are cutting down on output to reduce costs.

Having come to the end of the New Zealand spring and moving into the last quarter of the year of the season, if pasture growth and good weather allow, we may see some recovery in the collection numbers. Also, our view is, if farm-gate milk prices continue to rise which may be the case looking at recent price growth at the GDT auction, then at least some farmers may consider pushing their production marginally up.